Axie Infinity

The Story of Axie Infinity

Axie Infinity is an amazing story.

Created in 2017 by a Vietnamese computer game developer called Sky Mavis, Axie Infinity pioneered the crypto-based ‘Play-to-Earn’ model.

Like many good stories, this involves a rapid rise in fame and fortune, before a crushing fall that ended in a monster hack.

What’s interesting from a Future Earn perspective, is that millions of people were using the platform and in many cases, were earning more than they could in their day jobs.

The Game: How it Works

For context, in-game currencies and collectables have been around for a while. Level up and receive new powers, find weapons, upgrade armour - that’s all been possible, including the ability to pay real money to unlock upgrades faster.

The breakthrough by Axie Infinity was the combination of two things:

1. Use of NFTs (non-fungible tokens) for the characters and collectables making the assets yours (ownership via a blockchain wallet) rather than owned by a software company;

2. In-game currency called Smooth Love Potion (SLP), which meant you could earn a token that was publicly traded, thereby providing liquidity and a fluctuating real market value.

In terms of the game itself, it was pretty simple:

• A turn-based card battle game where players use a team of 3 Axies (game characters) to battle against opponents.

• Each Axie has its own unique stats, abilities, and class (e.g. beast, aquatic, plant) that determine its performance in battles.

• Players build a deck of cards representing their Axies' abilities, and take turns playing these cards to attack, defend, or use special abilities.

• Players can earn in-game currency called SLP by winning battles in the Adventure mode (PvE) or Arena mode (PvP).

• Adventure mode: Players battle against computer-controlled Axie teams, progressing through levels to earn SLP.

• Arena mode: Players battle against other human players' teams in ranked PvP matches.

Breeding and Marketplace

• Players can also breed their Axies to create new offspring, which can then be sold on the Axie Infinity Marketplace.

• Each Axie has 3 genes that determine the characteristics of its offspring. Breeding incurs a fee and requires the in-game currency SLP.

• The Axie Infinity Marketplace allows players to buy, sell, and trade Axies as NFTs.

Rise to Prominence in the Phillipines

The ability to earn SLP (which could be exchanged for other cryptocurrencies, and thefore to fiat) together with fun game play combined to accelerate the global adoption of Axie Infinity. This also coincided with COVID-19 lockdowns and the 2021/2022 crypto bull market.

Where it really exploded was in the Phillipines, peaking at over 2.7 million users in 2022. Some players were reporting earning up to USD$2,000 per month, multiples of the average monthly salary at just above USD$300 at the time (although this amount was more likely earned by Managers - explained below).

The value of SLP also peaked about USD 40c in 2021 which meant earnings increased by 40x for some players depending on when they got into the game (price chart below).

The game took on a new dimension when users started lending their spare Axies to other players (called Scholars), helping them get an upgraded way to play (often at a lower cost than buying a new Axie themselves). In return, the owners took a share of their earnings and became like landlords renting out their assets. This enabled the farming of Axies - build them up, lend them out, make money from other people playing the game. Lenders, also known as Managers, multiplied and took advantage of low income workers by coaxing them into the game on the promise of ever expanding earnings.

Soon this developed into a fully fledged business model, with larger groups forming guilds with more resources that could buy the Axies and lend them out, then pay managers 20% to support and train the users. This allowed them to scale rapidly, with a three tier economy (Yield-Manager-Scholar), bringing thousands of new users onto the platform.

Journalist Leon Callon-Butler made an excellent documentary (18 mins long) describing this economy and its impact on developing economies (youtube link below). You can tell by the portrayal in the video that it was made when Axie Infinity was still on the upswing.

Fall from Grace

Before you think this was just some obscure Vietnamese game developer, in 2021 venture capital firms led by Andressen Horowitz reportedly invested USD$150 million, valuing the company at USD$3 billion.

The company became the darling of the crypto world, both as the poster boy of ‘Play-to-Earn’ gaming, but also touting the ability of the game to lift people out of poverty. They were also making serious money, charging a transaction fee every time Axies were traded (totallying more than 1 billion transactions).

However, as new users flooded the system, generating more and more SLP, the value of the token plummeted from its +40c highs back to almost zero. COVID-19 restrictions were also scaled back in many countries, allowing players to return to work. Suddenly, the hard work and long hours needed no longer had the same pay out and the bubble had burst.

What the Hack?

When things couldn’t get much worse, in March 2022, North Korean hackers gained access to the network (via a successful phishing approach to an employee) and drained USD$620m from both Sky Mavis and players wallets. This was a reputational disaster and came in the same year as other major crypto scandals including the Terra Luna collapse and downfall of FTX.

Many people were badly caught out. Not just the Scholars who were working all day, but those higher up the chain (typically Managers) who had borrowed money to invest in Axies and setup their business.

Crypto skeptics were vindicated. Axie Infinity was a pyramid scheme and ‘Play-to-Earn’ proved illegitimate. They were largely right on the first point and on the second point my goal is to prove/unprove myself. The game economy forced you to buy Axies to get started and this was the only money coming into the economy. Like any pyramid, this required new users to sign up to pay existing users, and as soon as that number dropped off the structure crumbled with people rushing to get their money out.

Does this mean Play-to-Earn is a scam?

In starting Future Earn, my stated goal was to understand how we might earn money in future. I have no doubt Play-to-Earn will be one of those.

I wanted to get the Axie Infinity story on the table from the beginning. It is the definition of a cautionary tale. But I don’t think the founders set out to rip people off. I think they built a game using newly emerging technology (Ethereum), created a token based economy and invited people in. It got out of control, but I don’t think they anticipated what happened.

Rather, I see Axie Infinity as a sign post on the journey. It showed us that humans are happy to play games for money and got millions of people comfortable earning cryptocurrency.

I think each year we will see better games released, with better tokenomics and more sustainable in-game rewards. And once the business model is established, we will see global games companies like Epic Games, Activision or Electronic Arts follow suit.

I plan to keep researching these games so I can share them with you and recommend ones in future that work.

Finally, if the Axie Infinity story has intrigued you and you would like more detail, I couldn’t recommend this in-depth article more via Rest of World.

Also, if this article has been interesting and you would like more content on how we will earn money in future, including ‘Play-to-Earn’ please hit the subscribe button below.

Thanks Jack